October 7, 2022

How China’s Covid lockdowns are taking a toll on global companies

6 min read

The crisis is a clear reminder of the importance of China to global companies.

“If you’re a multinational right now, China is probably your first or second largest consumer market,” said Ben Kender, managing director of the consultancy China Market Research Group.

“And maybe it’s a big production base, or it’s responsible for a certain amount of your supply chain work,” he said in an interview with Shanghai, which has been in lockdown for six weeks.

These measures have imprisoned millions of people. at home For more than a month, leads to higher levels Stress. In many cases, residents are unable to leave their apartments without the special permission of community leaders, and many businesses are closed.

No shopping mode.

In recent years, China has become the largest market for everything from luxury goods to automobiles. But Last month, the world’s second-largest economy slowed sharply, hurting not only consumer spending but Employment.

Est loader, Home to Bobbi Brown and MAC Cosmetics, it now expects its global sales to grow between 7% and 9% year-on-year, down from the 13% to 16% previously reported in February.

The company said it had suspended all business in Russia and Ukraine since the attack, which had led to a drop in sales. Chief Financial Officer Tracy Travis said in a earnings call that sales in Asia Pacific also fell 4% in the last quarter, which was “driven entirely by Greater China”.

Adidas reported a 40% drop in profits.  Why is here

Some businesses have refused to make any predictions at all.

Previous Week, Starbucks (SBUX) CEO Howard Schultz called it the “sole responsibility mechanism” and suspended financial guidance for the next six months.
“The situation in China is unprecedented,” he told analysts on a earnings call. “The situation in China is such that we have virtually no ability to assess our performance in China for the last half of the year.” The country is Starbucks The second largest market.
Walking from a closed Starbucks outlet in Hangzhou in April.

Kering, owner of Gucci and Bottega Veneta, said last month that it was. Sensation of pain, “rapid reduction in traffic”, major logistical challenges due to store closures and lockdowns.

“Hopefully, the situation is temporary,” Chief Financial Officer Jean-Marc Duplex said in a corporate sales call.

However, the mood on the ground is gloomy.

“Honestly, consumers aren’t worried about buying lipstick or coffee right now,” Kevender said. “They are really focused on getting it. [necessities]”

In Shanghai, for example, the lockdown was initially massive. Quarrel over food And widespread complaints Difficulties in getting delivery.
Metwan calls for backup as Shanghai lockdown leads to fights over food
Now, even as access improves, many people focus on what is known. “Buy group” Allows customers living in the same community to place bulk orders for groceries and other essentials at the same time.

Even people who are not at home can be affected. Consumers who live in cities without restrictions are also reluctant to go out and kill property for fear of “what happened in Shanghai”, where people remain locked down indefinitely, Kevender said.

“This has been a huge negative drag on consumption.”

It is still the factory of the world.

Companies also have a problem at the back.

In the last few years, many businesses Is Worked to move At least some of their manufacturing is outside of China, thanks to a trade war with the United States. But that hasn’t stopped a large number of household names from getting caught up in the country’s cowardly crackdown.
Last month, apple (AAPL) Warned Of heavy losses Covid-19 Outbreaks appear to be exacerbated in China, where supply chain problems could hit sales by 4 4 billion to 8 8 billion this quarter.
Apple warns of serious supply headwind in China

Apple blamed the expected revenue shortfall on both sanctions in China and a lack of components worldwide. Some shutdowns briefly affected about 20% to 30% of all iPhone production, according to supply chain risk analysis firm EverStream Analytics.

Apple CEO Tim Cook said in a revenue call that Apple’s barriers were “primarily centered around the Shanghai Corridor”, where it has several factories affected.

In some cases, the tension has boiled over. Videos posted on Chinese social media last week showed workers at a factory in Shanghai walking past obstacles and clashing with security guards in Hazmat suits, which escalated friction during weeks of lockdowns. Suggest It was not immediately clear what exactly happened.

The factory is owned by Quanta, a Taiwanese Apple supplier. According to the Chinese state news agency Shenhua, the plant had resumed operations under a closed-loop system, with workers living in designated areas and adhering to strict protocols.

When asked about the matter, Apple referred CNN Business to Quanta. Quanta did not respond to a request for comment.

An outdoor commercial for the Apple iPhone 13 Pro was seen in April in Wuhan, China.
Last month, Microsoft (MSFT) Also The shutdown in Chinese production has damaged its supply of Surface laptops and Xbox consoles, and could potentially have a “major impact” on its quarterly performance, it said. Most of the PC maker’s production is in China, according to a recent list of its top suppliers.
The global auto industry has also been special. Hard hitSome players are temporarily shutting down factories, declining sales or delaying the launch of new cars.
Toyota, Volkswagen and Tesla are bringing their factories back to China.
The world’s two largest car companies, Volkswagen (VLKAF) And Toyota (TM)Both were recently forced to suspend production for weeks. Since both companies Production resumedHe warned that they would only grow slowly as supply chain disruptions continued.
Tesla (TSLA)Who runs a gigabyte factory in Shanghai, Also managed to do Resume production Last month, after several weeks of closure, But the company may have hit another snag.
on Tuesday, Reuters Citing unnamed sources, the report said that Tesla’s production had stopped most of its production due to problems with suppliers. The company did not immediately respond to a request for comment.

According to Cavender, many auto suppliers face difficulties in running and operating their factories, or in supplying components.

Demand for this specialty has grown significantly as a result of recent corporate scandals Volkswagen And Chinese manufacturer BYD Reported Recent increase in sugar sales.

However, Chinese ports and other logistics hubs are facing difficulties.

Last month, Amazon (AMZN) China’s hollowed-out growth has kept linehole air and shipping rates at or above the same rate in the second half of last year.

Presenting the company’s results, Chief Financial Officer Brian Olsowski told analysts about the spread of Omkron type in China and the shortage of labor in various locations.

The latter result

Many brands have expressed optimism about reviving their business after the crisis subsided.

In recent weeks, the Chinese government has worked to launch and run more businesses, as well as demonstrating its commitment. Help prevent it Economic loss.

But analysts have warned of the negative effects of the country’s “zero-sum” policy, which could lead to a significant slowdown in the economy this year.

Damage can be seen everywhere. Last month, China’s massive services sector faced this The second fastest fell While on record, manufacturing activities also reached record lows.
Health workers wear protective clothing at the entrance to the Coveid 19 testing site in a shopping complex in Beijing.
Despite this, Chinese President Xi Jinping has doubled the country’s epidemic outlook. Is saying On Thursday, the government will “fully implement” its “zero quad” policy.
China faces 'complex and serious'.  Job Market, Premier Lee warns

According to At least 31 cities in China are under complete or partial lockdown, according to the latest CNN figures, based on official figures, potentially affecting an estimated 214 million people nationwide.

According to trade groups, the ongoing dilemma could eventually force some businesses to reconsider their positions.

According to Jگrg Wutke, president of the European Union’s Chamber of Commerce in China, as other nations reopen, some foreign companies may consider moving their regional headquarters out of China.

“I’m definitely watching the conversation,” he told CNN Business.

Pedestrians along the empty Nanjing Road Shopping Street outside the affected areas during a lockdown in Shanghai, China, in March.

Kevender said recent challenges in Ukraine and China have made the “high-risk period” for international firms more widely understood.

“I think there are more challenges now than ever before to become a multinational,” he added.

– CNN’s Beijing Bureau, George Engels, Lizzie Yi and Nectar Gan contributed to this report.

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